Understanding capital gains tax

[goldenshoe]

Hope this is the correct place for this.

I'm trying to understand capital gains tax and how much I would pay on a personal item I sold this tax year.

If it's relevant the item was a gift from my (late) husband and I have no receipts to show exactly when it was bought or how much was paid for it at the time, I think it was around £800 in 2006 but can't be sure.

I'm a self employed sole trader and my business has been badly hit by covid resulting in my trading profit being significantly decreased, hence the sale of this item.

My understanding so far is that the CGT allowance is separate to my personal tax allowance? So if I sold the item for £20k, I deduct an allowance of £12300 to leave me paying tax on £7700. Plus if I have a £20k profit from my business, I also have my personal tax allowance of will pay tax on the remaining balance as usual.

Or, do I add both amounts together and deduct one personal allowance?

Obviously this changes my tax invoice quite significantly and any imparted knowledge is gratefully received!

Income and gains are computed separately and each has its own allowance as you say.

The only fusion is that the net capital gain is matched against your income levels. To the extent that the gain, when added to your other income, would hypothetically (ie as if it were income) be charged at 20% then the rate of CGT to apply is 10%. However if part of the gain falls above the basic rate threshold of £50,000 then it would be charged at 20%.

It sounds as if the item is a Chattel. The definition of a chattel is a movable item such as a painting, watch or bottle of vintage wine. If so, and it is not a 'wasting chattel' then it is exempt from CGT so long as its value does not exceed £6,000. If it had a predicted life of less than 50 years when originally made it is a 'wasting chattel' and may be exempt from CGT - eg antique guns, working model cars, bicycles.

The gain is the difference between what you sell it for after auctioneers costs and the probate value (or market value) when you inherited it from your late husband.

Thank you for the reply, that's what I wanted to hear, and now knowing it's a 'Chattel' has thrown up much more relevant information on a google search.

The item is a painting but the gain is more than £6000. It wasn't bought as an investment, so no receipts were kept and I didn't look up how much it might be worth until last year when I decided I was fed up trying to find place for it in my house!

I don't know what it was worth when my husband died and as I said, there is no record of the purchase but I do have invoices for auctioneers fees etc so all good there.

However, I had been keeping 20% of the sale aside for tax, so I'm happy to have a little less to pay!

Thanks again.

If you sold it for £20,000 deduct the auction and selling costs then try to establish what it might have been worth when he died. The difference is then taxed at 20%. There is no short cut to getting a value at death. If the profit is then below £12,300 there is nothing to report.

I'm resigned to paying capital gains based on the full sale price. I've looked up past sales of similar pieces and there's nothing to indicate what it was worth until quite recently (mine sold for a little less than the most recent previous sale), I guess I could ask the auction house for an estimate.

Thanks again for your help.

@NoMackerelInSwindon - Very thorough and accurate summation.

One quick note for the OP. You have an annual allowance of £12,300 CGT allowance.

i.e Capital gain of £15,000 - you only have a chargeable gain of £2,700.

A valuer's estimate would be OK as at the death. HMRC would accept that in your situation. The key is to not be negligent so you need to show you have taken reasonable steps to compute your tax position.